13 week cashflow forecasts

Looking at the bank balance today and the profit and loss account from last month does not tell you how much cash will be in the bank in a few weeks’ time.

13 weeks works well as a forecasting timeframe. It covers the whole quarterly cycle (think VAT, rent etc) and is short enough to be reasonably predictable rather than guess work.

A good cashflow forecast should show the cash coming in (sales invoices being paid) and cash going out (suppliers, taxes, payroll and rent) each week. It doesn’t need to be complicated, a simple spreadsheet will do, but it does need to be realistic and bridge the gap between profit and bank balance.

A cashflow forecast gives a completely different view to the profit and loss account. A profit and loss account will never tell you when the VAT or PAYE bills will be paid, or when your customers are likely to pay. A good cashflow forecast will help you deal with cash challenges such as:

• when the big payments will be going out, like payroll, VAT and a big supplier payments,

• how much cash a new client win will drain before it pays back,

• how much headroom you have if a big customer pays late, and

• whether you can afford that new employee before you make the offer, not after.

To run your business successfully you need to know what’s coming. A rough spreadsheet updated weekly is sufficient for smaller businesses, but as they grow they may need something a little more sophisticated.

Do you know what your bank balance will look like in three months?